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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM 10-K
FOR ANNUAL AND TRANSITIONAL
REPORTS PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended September 30, 2001
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number: 0-18222
RICA FOODS, INC.
(Exact Name of Registrant as Specified in Its Charter)
Nevada 87-0432572
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
240 Crandon Boulevard, Suite 150 33149
Key Biscayne, Florida (Zip Code)
(Address of Registrant's Principal
Executive Offices)
Registrant's telephone number, including area code: (305) 365-9694
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock,
par value $0.001 per share
Indicate by check mark whether the registrant (i) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (ii) has been subject to
such filing requirements for the past 90 days. Yes [X] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [_]
The aggregate market value of the voting and nonvoting common equity held by
non-affiliates of the Registrant, as of the latest practicable date, January
11, 2002, was approximately $2,184,751.24.
The number of shares outstanding of the Registrant's common stock, par value
$0.001 per share (the "Common Stock"), as of the latest practicable date,
January 11, 2002, was 12,864,321. There are no shares of preferred stock of
the Registrant outstanding.
RICA FOODS, INC.
TABLE OF CONTENTS
Page
----
PART I
Item 1 Description of Business........................................ 3
Item 2 Properties..................................................... 10
Item 3 Legal Proceedings.............................................. 11
Item 4 Submission of Matters to a Vote of Security Holders............ 12
PART II
Item 5 Market for the Registrant's Common Stock and Related
Stockholders Matters.......................................... 13
Item 6 Selected Financial Data........................................ 15
Item 7 Management's Discussion and Analysis of Financial Condition and
Results of Operations......................................... 15
Item 7A Quantitative and Qualitative Disclosures about Market Risk..... 20
Item 8 Financial Statements and Supplementary Data.................... 22
Item 9 Changes in or Disagreements with Accountants on Accounting and
Financial Disclosures......................................... 22
PART III
Item 10 Directors and Executive Officers, Promoters and Control
Persons....................................................... 23
Item 11 Executive Compensation......................................... 26
Item 12 Security Ownership of Certain Beneficial Owners and
Management.................................................... 27
Item 13 Certain Relationships and Related Transactions................. 28
PART IV
Item 14 Exhibits, Financial Statements Schedules and Reports on Form 8-
K............................................................. 28
2
PART I
ITEM 1. DESCRIPTION OF BUSINESS
Background
Rica Foods, Inc. (the "Company") was incorporated under the laws of the
State of Utah on February 6, 1986 under the name CCR, Inc. The Company
undertook a public offering of its securities in 1987. In 1994, the Company
changed its name to Quantum Learning Systems, Inc. and its state of
incorporation to Nevada. On August 5, 1996, the Company changed its name to
Costa Rica International, Inc., and on May 29, 1998, the Company changed its
name to Rica Foods, Inc., to better reflect its core business.
In April 1996, Corporacion Pipasa, S.A. and subsidiaries ("Pipasa"), a Costa
Rican corporation, entered into an agreement and plan of reorganization with
the Company, pursuant to which the Company acquired 59.56% of the common stock
of Pipasa. On December 7, 1999, the Company consummated the acquisition of the
40.44% remaining minority interest, such that, as of the date hereof, the
Company owns 100% of the common stock of Pipasa.
On February 26, 1998, the Company consummated an agreement with Comercial
Angui, S.A., a corporation in Costa Rica to purchase 56.38% of the outstanding
common stock of Corporacion As de Oros, S.A. and subsidiaries ("As de Oros"),
a corporation in Costa Rica. On November 22, 1999, the Company consummated the
acquisition of the remaining 43.62% shares of common stock of As de Oros, such
that, as of the date hereof, the Company owns 100% of the common stock of As
de Oros.
Acquisitions and disposal of assets
In October 2000, the Company entered into a stock purchase agreement (the
"Indavinsa Agreement") with Industrias Avicolas Integradas, S.A.
("Indavinsa"), a Nicaraguan company engaged in the production and distribution
of poultry and animal feed concentrate products. Pursuant to the terms and
conditions of the Indavinsa Agreement, the Company agreed to acquire an 80%
ownership interest in Indavinsa in exchange for 100,000 shares of common stock
of the Company and $300,000 in cash payable at the closing of the transaction.
The Company and Indavinsa are currently in the process of renegotiating
several material terms and conditions of the Indavinsa Agreement. As of this
date, the Company has not scheduled a date for the closing of the transactions
contemplated by the Indavinsa Agreement.
In October 2000, the Company announced it had reached an agreement with
Stock Management International ("SMI"), a British Virgin Islands corporation,
to sell an 81% controlling interest in the subsidiaries of As de Oros, Planeta
Dorado, S.A. and Corasa Estudiantes, S.A. (collectively, the "Restaurants"),
in exchange for a note receivable (the "SMI Agreement"). Pursuant to the terms
and conditions of the SMI Agreement, the Company would receive $4.05 million
over a five-year period, at an annual interest rate of 10.06%, payable every
six months. SMI would have a grace period of one year and would subsequently
make four annual payments to the Company in the amount of $1,012,500 each. In
addition, under the SMI Agreement, As de Oros would continue to supply poultry
products to the Restaurants for a period of 12 years. As of the date hereof,
the Company and SMI have mutually agreed to terminate the SMI Agreement. The
Company is currently negotiating the sale of the Restaurants with other third
parties.
In December 2000, the Company announced its intent to acquire a majority of
the outstanding common stock of Avicola Core Etuba, Ltda. ("Core"), a
Brazilian company engaged in the production and distribution of poultry
products. In March 2001, the Company agreed to acquire a 75% stake in Core for
$3.5 million, and an option for the remaining 25% stake for $1.7 million. The
Company expects to close each of these transactions during fiscal year 2002.
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Reverse Stock Split
On December 15, 1998, the Board of Directors declared a 1 for 3 reverse
stock split (the "Split") of the Company's Common Stock to be effective on
December 29, 1998. In connection with the Split, new certificates were issued
and those stockholders owning more than five shares of Common Stock on the
Split date, received one full share for each fraction of a share to which they
would be entitled. Each stockholder holding less than 5 shares of Common
Stock, on the split date, received a payment in cash for the fractional share
held by each of them, based on the mean of the bid and ask price on the
effective date of the Split. All share amounts have been restated to reflect
the Split.
Financing
In February 1998, the Company consummated the refinancing of a part of As de
Oros' and Pipasa's (collectively, the "Subsidiaries") debt through the
issuance of an aggregate of $20 million of the Company's 11.71% Series A
Senior Notes and Series B Senior Notes (the "Notes"). Principal payments on
the Notes will be made from January 15, 2001 through January 15, 2005 in five
annual installments of $4,000,000. These Notes were placed through Citicorp
Securities, Inc. and were purchased by Pacific Life Insurance, Co. and several
of its subsidiaries ("Pacific Life") pursuant to a Note Purchase Agreement
(the "Note Purchase Agreement"). With the proceeds of these Notes, the Company
repaid $8 million and $12 million of the indebtedness of Pipasa and As de
Oros, respectively. On December 28, 2000, the Company and Pacific Life amended
and restated the Note Purchase Agreement (the "Amended and Restated Note
Purchase Agreement"), pursuant to which Pipasa and As de Oros became direct
obligors of Pacific Life, and the Company assumed certain obligations of the
subsidiaries, but not as guarantor. In accordance with the Amended and
Restated Note Purchase Agreement, the interest rate applicable to the Notes
currently is 11.96%.
On January 14, 2002, Pacific Life, the Company and each of the Subsidiaries
entered into a waiver agreement (the "Waiver"), pursuant to which Pacific Life
waived certain events of default that may have occurred under the Amended and
Restated Note Purchase Agreement. As the Company disclosed in its Form 8-K
filed on December 28, 2001, which is hereby incorporated by reference, the
Company and the Subsidiaries believe that an event of default may have
occurred under (i) Section 10.1 of the Amended and Restated Note Purchase
Agreement as a result of the making of loans to certain individuals and/or
entities; (ii) Section 10.4(a)(iii) of the Amended and Restated Note Purchase
Agreement due to the Subsidiaries' failure to comply with a requirement that
the ratio of Consolidated Total Debt to Consolidated EBITDA (each such term as
defined in the Amended and Restated Note Purchase Agreement) at no time exceed
a 3 to 1 ratio during certain fiscal years; and (iii) Section 10.6(j) of the
Amended and Restated Note Purchase Agreement which requires that the
Subsidiaries not incur additional liens, under certain circumstances, in
excess of .50 times Consolidated EBITDA for fiscal year 2001. These breaches
did not involve any payment violation and, in fact, the Company is current on
all payments due to be paid to Pacific Life, as well as all other payments
currently due to be paid to other third party creditors of the Company. In
addition, the Company expects to make the next timely required payment under
the Amended and Restated Note Purchase Agreement in the amount of
approximately $4.9 million during the first half of January 2002. This will
reduce the principal amount outstanding under the Amended and Restated Note
Purchase Agreement to $12.0 million, from the original amount borrowed of
$20.0 million.
During the second quarter of fiscal year 2001, the Company signed an
engagement letter with the investment banking firm of Ladenburg Thalmann & Co.
Inc. ("Ladenburg"). During the fourth quarter of fiscal year 2001, the Company
engaged an additional investing banking firm, Morgan Lewis Githens and Ahn
("Morgan Lewis"). Both Ladenburg and Morgan Lewis have been engaged to assist
the Company in structuring its overall corporate and expansion plans,
including the possibility of issuing debt or equity securities, debt
restructuring and any project financing.
Public Offering of Preferred Shares in Costa Rica
As de Oros was authorized by the Superintendencia General de Valores, the
official market and securities regulator in Costa Rica, to offer 1,000,000
shares of its preferred stock for an aggregate proposed purchase price of $20
million (the "Preferred Shares") in Costa Rica during fiscal year 2001.
However, due to a Costa Rican
4
government issuance of more than $250 million in bonds which decreased the
liquidity in the Costa Rican securities market, the Company cancelled the
proposed public offering of the Preferred Shares during the last quarter of
fiscal year 2001.
Business of the Company
The Company's operations are largely conducted through Pipasa and As de
Oros, its two largest subsidiaries. Pipasa, founded in 1969, is the largest
poultry company in Costa Rica with a market share of approximately 50% of the
chicken meat market in Costa Rica, according to information provided by the
Costa Rican Chamber of Poultry Producers, Camara Nacional de Avicultores de
Costa Rica ("CANAVI"). The main activities of Pipasa include the production
and sale of fresh and frozen poultry, processed chicken products, commercial
eggs and concentrate for livestock and domestic animals. Pipasa has been in
the poultry business for more than 30 years with more than 15 years of
experience in exports.
As de Oros, founded in 1954, is Costa Rica's second largest poultry
producer, comprising approximately 20% of the country's poultry market,
according to information provided by CANAVI and several Company surveys, and
is one of the leaders in the Costa Rican animal feed market with a market
share of approximately 28%. As de Oros subsidiaries' also operate a chain of
27 fried chicken quick service restaurants in Costa Rica called Restaurantes
As, and Don Amado, operated by Planeta Dorado, S.A, a Costa Rican corporation.
In October 2000, the Company entered into an agreement to sell an 81%
ownership interest in the subsidiary that owns the Restaurants. As of the date
hereof, the Company has terminated this agreement and currently continues to
operate Restaurantes As and Don Amado.
The Company's subsidiaries own a total of 78 urban and rural outlets
throughout Costa Rica, three modern processing plants and three animal feed
plants. Due to similar business activities, the combined operations of the
subsidiaries permit the Company to achieve operational efficiencies.
The Company promotes its brand names through advertisements and marketing
events and considers its subsidiaries to be among the most recognized Central
American chicken producers, supplying chicken in Costa Rica to Burger King,
Subway, Kentucky Fried Chicken and Pizza Hut franchises, Price Smart, Taco
Bell and Gerber Products companies. In addition, the Company, through its
subsidiaries, was selected by the McDonald's Corporation to be one of its
poultry suppliers for all of Central America. During fiscal year 2001, the
Company invested approximately $8.4 million in productive assets in its
subsidiaries, which is expected to increase efficiency and output.
The Company's subsidiaries do not depend on the sales of only one product
but rather a diversity of products available at a range of prices and
presentations, which represent an important strategic strength of the
subsidiaries. The Company produces and markets over 700 different products to
meet consumer demands.
Segments
Information regarding the Company's segments for the last three fiscal years
is set forth in the Note 15 to the Company's fiscal year 2001 audited
consolidated financial statements. Such information is incorporated herein by
reference. The following is a brief description of the main business segments
of the Company:
BROILER CHICKEN: Poultry is a popular food item in Costa Rica because of its
easy preparation, nutritional value and low price when compared to other
available meats, according to information provided by the Junta de Fomento
Avicola, a Costa Rican governmental institution. The per capita consumption of
poultry in Costa Rica has increased from approximately 20.25 kilograms (44.6
lbs.) for the year 2000 to approximately 21.05 kilograms (46.3 lbs.) for the
year 2001, a 4% increase during the period. Poultry is consumed at all social
levels and is not defined by geographic markets. The popularity of poultry in
Costa Rica extends beyond broiler chicken and includes chicken by-products,
such as sausages and cold cuts. The Company's main brand names for broiler
chicken, chicken parts, mixed cuts and chicken breasts are Pipasa(TM) and As
de Oros(TM). Broiler chicken is a generic product that is directed at
customers of all social and economic levels. Polls and consumer information
gathered by the Company indicate that Costa Ricans eat chicken at least once a
week. Chicken is sold to institutional clients, schools, hospitals,
restaurants and small grocery stores. In Costa Rica, Pipasa
5
currently supplies Burger King, Denny's, Kentucky Fried Chicken, Pizza Hut
franchises, Outback Steakhouse, Price Smart, Taco Bell, Tony Roma's and Gerber
Products companies. The Company's subsidiaries have also been selected by the
McDonald's Corporation to be one of its poultry suppliers for all of Central
America.
CHICKEN BY-PRODUCTS: Chicken by-products include sausages, bologna, chicken
nuggets, chicken patties, frankfurters, salami and pate. Chicken by-products
are one of the most profitable segments of the Company. The Company's chicken
by-products are sold through the Kimby(TM), Chulitas(TM), and As de Oros(TM)
brand names and are sold to all social and economic levels. These products are
sold mainly in supermarkets, and sales are predominantly driven by price. The
Kimby(TM) brand name is the leading seller of chicken by-products in Costa
Rica. During October 2000, the Company purchased the brand name Zaragoza(TM)
from a company in Costa Rica, and began to produce and distribute this product
under the Zaragoza brand name during fiscal year 2001.
ANIMAL FEED: Animal feed is made with imported raw materials, such as corn
and soybean meal, along with the unused portions of chicken and other vitamins
and minerals. Animal feed is marketed for consumption by cows, pigs, birds,
horses and domestic pets. The Company's animal feed products are sold through
the Ascan(TM), Aguilar y Solis(TM), Kanin(TM), Mimados(TM) and Nutribel(TM)
brand names. Customers for the commercial animal feed brands are mainly large
wholesalers and high scale breeders. This customer group focuses on quality
and price. Products marketed through the Mimados(TM), Kanin(TM) and Ascan(TM)
brand names are targeted towards veterinarians, pet stores and supermarkets
and are sold typically to consumers with medium to higher income levels. The
Company is currently the leader in the animal feed market in Costa Rica, with
a 28% market share.
QUICK SERVICE: Corporacion Planeta Dorado, S.A. and subsidiaries
("Restaurants") operate 27 restaurants located in rural and urban areas
throughout Costa Rica, including express delivery service in some restaurants.
This segment is comprised of quick service restaurants, which offer a
diversified menu of chicken meals. Restaurants distinguishes itself from other
quick service chains by offering dishes and using recipes and ingredients
which appeal to the taste of consumers in Costa Rica. The quick service
restaurant business is highly competitive in Costa Rica, as several other
quick service chains operate in Costa Rica.
EXPORTS: Subsidiaries of the Company export different products to all
countries in Central America and the Caribbean and make occasional exports to
Hong Kong and Colombia. The Company exports mainly the Pipasa(TM),
Mimados(TM), Ascan(TM) and Kimby(TM) brand names.
OTHER: This segment includes sales of commercial eggs, non-recurrent sales
of fertile eggs and sales of recycling material and raw material sales, among
others. "Other" sales make up less than 5% of total sales for fiscal year
2001.
Distribution Network
The Company has a distribution fleet consisting of approximately 229 product
distribution trucks and supervision vehicles. Poultry delivery trucks are
equipped with refrigeration chambers to ensure delivery of fresh products
daily, thus maintaining the Company's reputation for fresh quality products.
In addition, the Company used independent distributors to deliver larger
quantities of animal feed to some of its customers during fiscal year 2001.
The Company's products are sold throughout Costa Rica, through owned or
leased delivery trucks, urban and rural retail outlets that may also be owned
or leased, supermarket chains and independent distributors. A majority of the
total distribution of the Company's products is conducted through the
Company's urban retail outlets and delivery trucks, with a smaller portion
through rural outlets. The remaining distribution is serviced through the
Company's processing plants. The retail outlets, mostly located in urban
areas, are exclusively dedicated to the sale of the Company's products and
most of these outlets are leased by the Company. The Company has a customer
data base of over 44,000 customers comprised of active, occasional and non-
active customers during fiscal year 2001. The Company sold products to
approximately 54% of the customers in its data base.
6
Seasonality
The Company's subsidiaries have historically experienced and have come to
expect seasonal fluctuations in net sales and results of operations. The
Company's subsidiaries have generally experienced higher sales and operating
results in the first and second quarters of the fiscal period. This variation
is primarily the result of holiday celebrations during this time of year in
which Costa Ricans prepare traditional meals, which include dishes with
chicken as the main ingredient. The Company expects this seasonal trend to
continue for the foreseeable future.
Raw Materials
The primary raw material and main component for the Company's products
consists primarily of corn and soybean meal. Corn and soybean meal purchases
represent approximately 35% of the total cost of goods sold and 60% of raw
material costs. Historically, the Company has been able to obtain a
satisfactory supply of these materials.
The Company imports all of its corn from the United States through the
Chicago Board of Trade ("CBOT") and uses commodity futures and forward
purchasing for hedging purposes to reduce the effect of changing commodity
prices on a portion of its commodity purchases. The price of corn and soybean
meal, like most grain commodities, is fairly volatile and requires constant
and daily hedging in order to minimize the effect of price increases on the
Company's profit margin. Changes in the price of corn can significantly affect
the Company's profit margin.
The Company purchases its soybean meal through Industrias Oleaginosas, S.A.,
a Costa Rican corporation ("INOLASA"), in which the Company holds a 10% equity
interest. In Costa Rica, there is an applicable 5% tax for soybean meal
imports, which is not levied if such imports are purchased through INOLASA. If
for any reason INOLASA cannot deliver the soybean meal to the Company, the
Company can buy its soybean meal directly from the CBOT. Thus far, the Company
has never had to purchase soybean meal directly from the CBOT.
Customer Relations
The majority of the Company's customers are located in Costa Rica. No single
customer accounted for more than 10% of total consolidated sales, and the
Company believes that the loss of any single customer would not have a
material adverse effect on the Company's business.
Backlog of Orders
As of September 30, 2001, the Company had no backlog of sales orders.
Competition
In the past, the Company has not had any significant domestic competition.
However, during fiscal year 2001, domestic competition increased. The
Company's local market share also could potentially be threatened by foreign
competition. The Company believes that the likelihood of a threat by foreign
competitors is low for several reasons. First, the Company has a strong
reputation for producing high quality products at a reasonable price.
Additionally, consumers in Costa Rica prefer fresh chicken to frozen chicken.
Due to transportation constraints and distance, foreign competitors would have
to sell frozen chicken if they were to sell chicken in Costa Rica.
The Agriculture Ministry in Costa Rica monitors all chicken entering the
country to prevent the spread of Newcastle Disease in Costa Rica. The market
in Costa Rica is also assisted by tariff agreements at the present time.
Chicken importers must pay duties as dictated by the General Agreement on
Trade and Tariffs ("GATT"). These agreements were reached at the Uruguay Round
of the GATT negotiations, which are scheduled to end in
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2004, after which it is probable that similar negotiations will continue. The
agreements and current negotiations that are being carried out with the
present Costa Rican government provide quotas and scaled tariffs, and permit
only certain cuts to enter the Costa Rican market.
Pricing
In Costa Rica, there are no laws against monopolies; however, there are laws
against monopolistic practices. Companies that have a dominant market share in
Costa Rica cannot arbitrarily increase prices in order to take advantage of
market position. Companies also are forbidden to work in conjunction with
their competitors in order to create price collusion.
The Company's pricing strategies have been influenced by the devaluation of
the Costa Rican colon, economic conditions and the supply and demand of the
product in the market. Historically, the Company has consistently increased
its sales prices in order to mitigate the effect of the devaluation of the
colon. The Company believes it has excellent data on consumer reactions to
price increases and uses this information in its strategy to counteract the
devaluation of the colon. According to past experience, a significant price
increase leads to a temporary decrease in sales that lasts approximately two
months.
During fiscal year 2001, the Company's pricing strategy was influenced
mainly by economic conditions which shifted the demand to lower priced
products. During fiscal year 2001, the colon devalued 6.79% and the Company
increased its prices by an average of 1.50%.
Marketing
The Company has a division dedicated to marketing. The marketing
department's responsibility is to advertise the Company's various products and
brand names. In addition to television and radio advertisements, the Company's
distribution centers promote the Company's brand names by distributing
posters, T-shirts and hats with the Company's logo. In Costa Rica, the
Company's brand names commonly appear on billboards and bus stops. Other
marketing techniques used by the Company include packaging presentations,
promotions and sponsoring of special national events.
Research and Development
The Company conducts continuous research and development activities to
improve the quality of the diet fed to poultry during their growing stage. The
annual cost of such research and development programs is less than one percent
of total consolidated annual sales and is expensed as incurred.
Employee Compensation and Incentives
As of November 2001, the Company employed approximately 3,200 persons.
The Company believes it has good relations with its employees. Private
companies in Costa Rica typically support their own workers' associations
instead of organized unions. These associations offer various benefits for the
employees associated. The success of the worker's association, Asociacion
Solidarista de Empleados de Pipasa, As y Afines ("ASERICA"), and the fact that
there has never been a strike at the Company's facilities, reflects the
quality of the management team and its ability to keep the Company's employees
satisfied. ASERICA provides recreational facilities, healthcare and pension
benefits as well as financial services to the Company's employees. This
association is located on land donated by Mr. Chaves and is among the largest
workers' associations in Costa Rica.
Salaries in Costa Rica are increased twice a year as dictated by the
government in order to counterbalance the effect of inflation and increases in
the cost of living. The Company's policy is to increase the salaries of all
employees every six months to offset the effect of inflation. At the present
time, labor laws in Costa Rica require
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all companies in Costa Rica to make a payment equivalent to 8.33% of an
employee's yearly gross salary for every year of employment, as severance to
be paid upon the termination of an employee. Current laws require the Company
to deposit 3% of the 8.33% into a pension fund. Of the remaining 5.33%, the
Company deposits 4% with ASERICA. Each employee is required to match the 4%
payment by the Company to ASERICA as part of a savings program. The remaining
1.33% is paid each February by the Company directly to each employee. Any
remaining amount owed by the Company must be settled when the employee is
terminated. The Company settles severance pay when an employee is terminated
and believes it is reasonable based on past experience. As of September 30,
2001, the Company provides severance pay in the amount of approximately
$69,000 included in accrued expenses.
All employees in Costa Rica are protected by obligatory insurance with the
Caja Costarricense de Seguro Social ("CCSS") and the Instituto Nacional de
Seguros ("INS") which are the government's social security and insurance
programs, respectively. All companies in Costa Rica must pay the CCSS and the
INS 21% and 1.74% of each employee's monthly salary, respectively. The CCSS
pays 70% of the employee's normal salary during the periods in which the
employee is unable to work. In addition to these benefits, employees must pay
a total of 8% of their monthly salary to the CCSS in order to receive
healthcare, pension and maternity care benefits, and 1% to the Banco Popular
into an obligatory savings account.
Employees of the Company are provided with a profit sharing program. If
either one of the Company's subsidiaries has a successful year and generates
profits in excess of budgeted levels, that entity will distribute a percentage
of its net income to its employees. This incentive is calculated monthly and
distributed every two months. The Company encourages its employees to develop
a career with the Company, and accordingly, in conjunction with a local
university, the Company offers a business administration program for its
employees. The main goal of the program is developing the Company's future
management team. In addition, the Company's human resources department offers
in-house and outside training for its employees in various fields, in order to
assure quality in all areas.
On May 29, 1998, the Company adopted the 1998 Stock Option Plan (the
"Plan"). Under the Plan, 200,000 shares of the Company's Common Stock are
reserved for issuance upon the exercise of options. The plan is designed to
serve as an incentive for retaining and attracting persons and/or entities
that provide services to the Company and its subsidiaries. As of September 30,
2001, 6,400 shares had been issued under this Plan and no options were
outstanding.
Poultry Raising Process
The poultry raising process starts with the import of one-day old parent
hens from the United States. Once these hens reach their egg-laying period,
which takes about 24 weeks, they produce fertile eggs, which are then
incubated in order to produce baby chicks. The hatching period lasts 21 days,
which is divided into 19 days in hatching machines and two days in birth
chambers. These baby chicks are inoculated to prevent diseases. The chicks are
then brought to the Company's own raising house or to independent integrated
producers who raise the chicken to full size (typically a seven week process)
and provide basic elements such as vitamins, formula and a balanced ration of
feed.
The integrated producers are a group of 167 farmers who own their own land
and facilities. The producers have a long-term contract with the Company to
raise the baby chicks to adult birds with an average weight of 2.02 kilograms
(approximately 4.5 lbs.). During fiscal year 2001, integrated producers
supplied approximately 58% of the total number of chickens needed by the
Company. These producers are paid according to the weight and quality of the
chickens produced and the mortality rate of the chickens raised. The Company
provides veterinary services and offers vaccines and chicken feed to the
farmers at wholesale prices. Regardless of whether the Company or the
integrated producers raise the chickens, the chickens are regularly inspected
for immune deficiencies, vitamin levels and general diseases. By working in
conjunction with these integrated producers, the Company has greater
flexibility to increase or decrease the number of chickens raised depending on
the Company's growth objectives.
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Once the chickens reach the desired weight, they are taken to one of the
processing plants. At the processing plants, the chickens are slaughtered and
the meat packaged or processed to make chicken by-products. The Company
believes that its processing facilities are among the most sophisticated and
largest in the country. The plants' processing capacity is approximately 98
million kilograms annually. Costa Rica has been declared free of Newcastle
Disease, and additionally, the Company recently adopted the guidelines of the
Hazardous Analysis and Critical Control Points ("HACCP"), which are expected
to be fully implemented in the near future. HACCP is a prevention-based food
safety system used widely throughout the food industry. It is a tool used to
assess hazards and to establish controls based on the prevention of food
contamination. By identifying critical points in the process flow that could
lead to contamination of food products and applying control measures at each
point, the likelihood of food borne illness is reduced. All new employees are
trained as to the proper procedures required in handling and preparing food.
Regulations
The Company's poultry hatcheries and processing plants are subject to
regulation under Costa Rican law regarding cleanliness and health standards.
Exports of the Company's poultry products are regulated in the countries in
which the Company sells its products. The Company has strict sanitary
processes in order to provide consumers with product integrity, safety and
quality and is in compliance with all health regulations.
Environmental Compliance
The Company has been and is practicing appropriate environmental policies
such as reforesting, processing and recycling of waste, producing organic
fertilizer, building oxidation lagoons and sewage treatment plants. The
Company's compliance with environmental laws and regulations relating to the
discharge of material into the environment or otherwise relating to the
protection of the environment has not had a material effect on the Company's
financial position and results of operations. For fiscal year 2001, the
Company invested approximately $660,000 in environmental projects, such as
waste treatment facilities and sewage processing. For the next fiscal period,
the Company intends to invest approximately $150,000 to improve its sewage
treatment in the processing plant.
At the present time, the Company is not subject to any material costs for
compliance with any environmental laws in any jurisdiction in which it
operates. However, in the future, the Company could become subject to material
costs to comply with new environmental laws or environmental regulations in
jurisdictions in which it might conduct business. At the present time, the
Company cannot assess the potential impact of any such potential environmental
regulations.
ITEM 2. PROPERTIES
The Company conducts its operations through its production facilities and
executive offices, which are all located in Costa Rica. All facilities are
owned by the Company's subsidiaries, Pipasa and As de Oros. The following
contains descriptions of the principal facilities:
Production Area
The production area includes the following divisions: Animal Feed
Production, Reproduction, Hatcheries, Growing Stage, Broiler Processing, and
By-products Processing. The production capacities are described below:
The Company owns three processing plants for its Animal Feed division. These
plants perform activities which include grinding grains, mixing flour and
packing different types of animal feed products. The facilities produce an
aggregate of approximately 310,000 tons of animal feed annually.
The Reproduction division facilities utilize an average of 72 galleys
annually, which have a capacity to produce approximately 61 million fertile
eggs annually.
10
The Hatchery Division consists of two incubation plants, which the Company
believes are among the most modern in Central America. The plants' incubation
and hatching halls can be expanded to increase production. The Company expects
that these plants will fulfill production needs for many years. The incubation
facilities produce approximately 43 million chicks annually.
One day after birth, chicks are transferred to the Growing Stage division.
During this stage, the chicks receive three types of diet, according to growth
requirements. The growth stage lasts approximately 43 to 45 days. The Company
owns 30 farms, and 167 farms are leased as integrated producers. The
facilities production capacity is approximately 41 million chickens annually,
which includes integrated producers.
The Broiler division is divided into slaughter and pluck, coolers and
retailers, packing and cuts and sub-products processes. The facilities have a
production capacity of approximately 98 million kilograms annually, working
two shifts.
The By-products processing division is divided into sausage, formed,
packaging, oven and cooking areas. The facilities have a production capacity
of approximately 9.8 million kilograms annually.
Distribution
Distribution is conducted through retail outlets in Costa Rica, the majority
of which are leased. There are a total of 27 restaurants, the majority of
which are also leased.
Administrative Area
Administrative offices of the Company are located in Key Biscayne, Florida.
Staff, administrative, and financial headquarters of Pipasa and As de Oros are
located in La Ribera de Belen, Heredia, Costa Rica.
ITEM 3. LEGAL PROCEEDINGS
Pipasa is a defendant in a lawsuit brought in Costa Rica, pursuant to which
the plaintiff in such action is seeking damages in an amount equal to $3.6
million. Pipasa was served with prejudgment liens for $1.5 million and, with
the approval of the Juzgado Sexto Civil, the court with jurisdiction over the
lawsuit, certain parcels of real estate owned by Pipasa have been substituted
for such liens. This approval was ratified by the Superior Court on November
11, 1999, and all funds initially attached have been released and returned to
Pipasa. Costa Rica law requires the posting of guarantees by a plaintiff
seeking prejudgment liens and, in connection with this lawsuit, Pipasa has
filed objections to the guarantee filed by the plaintiff. A ruling on these
objections is pending. Pipasa has also filed pleadings in opposition to the
underlying lawsuit; a ruling on these pleadings also remains pending.
In connection with this pending lawsuit, the plaintiff also brought suit
against Pipasa in the State of California and the State of Florida. The
California lawsuit has been dismissed without prejudice. The Florida lawsuit
is still pending and Pipasa's defense is based on, among other things, a lack
of personal jurisdiction in the State of Florida. Interrogatories, Request to
Produce Documents and Request for Admissions have been answered by Pipasa. The
Company and its Chairman, Calixto Chaves, as a non related third party, were
subject to a Request to Produce Documents to the extent each possesses
information and/or documents related to the case. The Company cannot ascertain
the basis of the claim or the relief sought, but believes the lawsuits are
without merit and intends to assert an appropriate defense. At the present
time, neither the Company nor Pipasa can evaluate the potential impact of this
lawsuit on the financial results of the Company, nor can the Company assess
the likelihood of an unfavorable outcome.
On January 8, 2002, Richard W. Baldwin, individually and on behalf of other
persons who allegedly acquired the Company's securities between January 16,
2001 and December 28, 2001 (the "Class Period"), filed a class action lawsuit
against the Company; Calixto Chaves, the Company's Chairman, Chief Executive
Officer
11
and President; Jose Pablo Chaves, the Company's former Chief Operating
Officer; Randall Piedra, the Company's former Chief Financial Officer; and
Monica Chaves, the Company's Secretary, in the United States District Court
for the Southern District of Florida. The complaint alleges violations of
Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5
promulgated thereunder. The complaint alleges, among other things, that,
during the Class Period, the named defendants filed documents with the U.S.
Securities and Exchange Commission which failed to disclose that the Company
was not in compliance with the Pacific Life Amended and Restated Note Purchase
Agreement. The complaint also alleges that the Company knew that the filings
were false and misleading, and that the misrepresentations of the Company
caused the price of the Company's Common Stock to be artificially inflated
during the Class Period. Plaintiff seeks to recover damages on behalf of all
those who purchased or otherwise acquired securities during the Class Period.
The Company has twenty days to answer the complaint and, among other things,
intends to file appropriate motions, including a Motion to Dismiss, a Motion
to Quash and an objection to the Class Certification. The Company believes
that the complaint is without merit and intends to challenge the Plaintiff's
claims.
No legal proceedings of a material nature, to which the Company or the
subsidiaries are a party, exist or were pending during the fiscal year ended
September 30, 2001. The Company, except for the legal proceedings disclosed
above, knows of no other legal proceedings of a material nature pending or
threatened or judgments entered against any director or officer of the Company
in his capacity as such.
The Company is involved in various other claims and legal actions arising in
the ordinary course of business. In the opinion of the Company's management,
the ultimate disposition of these matters will not have a material adverse
effect on the Company's consolidated financial position, results of operations
or liquidity.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The following matters were submitted to a vote of the Stockholders during
the fiscal year ended September 30, 2001.
Stockholders Meeting for the Fiscal Year ended September 30, 2001
The Annual Meeting of Stockholders (the "Annual Meeting") was held at the
Sheraton Biscayne Bay Hotel, Miami, Florida, at 10:00 a.m., local time, on
August 31, 2001, for the following purposes:
1. To elect nine members of the Company's Board of Directors to hold
office until the Annual Meeting of Stockholders of the Company's fiscal
year 2002, or until their successors are duly elected and qualified;
2. To consider and vote upon a proposal to ratify the selection of Arthur
Andersen as the Company's independent auditors for the fiscal year
ended September 30, 2002; and
3. To transact such other business as may properly come before the Annual
Meeting or any adjournments or postponements thereof.
The total outstanding shares of the company as of the date of the annual
meeting were 12,864,321 out of which a total number of 12,589,011 shares were
voted.
12
The Stockholders Meeting voted for the proposals as follows:
Proposal number 1:
For Director number 1: 12,577,496 votes
For Director number 2: 12,577,496 votes
For Director number 3: 12,577,496 votes
For Director number 4: 12,577,496 votes
For Director number 5: 12,577,496 votes
For Director number 6: 12,577,496 votes
For Director number 7: 12,577,496 votes
For Director number 8: 12,577,496 votes
For Director number 9: 12,577,496 votes
Against Director number 1: 11,515 votes
Against Director number 2: 11,515 votes
Against Director number 3: 11,515 votes
Against Director number 4: 11,515 votes
Against Director number 5: 11,515 votes
Against Director number 6: 11,515 votes
Against Director number 7: 11,515 votes
Withhold Director number 1: 0 votes
Withhold Director number 2: 0 votes
Withhold Director number 3: 0 votes
Withhold Director number 4: 0 votes
Withhold Director number 5: 0 votes
Withhold Director number 6: 0 votes
Withhold Director number 7: 0 votes
Withhold Director number 8: 0 votes
Withhold Director number 9: 0 votes
Proposal number 2:
FOR 12,589,008 votes
AGAINST 1 votes
ABSTAIN 2 votes
Relating to item number two of the purposes of the Annual Meeting, Arthur
Andersen LLP was appointed as the Company's independent auditors for the
fiscal year ended September 30, 2002.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
The Company's Common Stock started trading on the American Stock Exchange
("AMEX") under the symbol RCF on May 14, 1999 and prior to that date traded on
the NASDAQ National Market under the symbol RICA. The following table
presented below sets forth the market price range of the Common Stock for each
quarter during the years ended September 30, 2001 and 2000, based on the high
and low closing sale prices as reported on the AMEX and NASDAQ prior to the
transfer to AMEX. Such high and low sales prices reflect inter-dealer prices
without retail markup, markdown or commission and may not necessarily
represent actual transactions.
13
Market Price
Range
---------------
High Low
------- -------
FISCAL YEAR 2001
First Fiscal Quarter (10/1/00 to 12/31/00)................ $ 4.550 $ 3.600
Second Fiscal Quarter (1/1/01 to 3/31/01)................. 5.150 2.650
Third Fiscal Quarter (4/1/01 to 6/30/01).................. 5.375 2.400
Fourth Fiscal Quarter (7/1/01 to 9/30/01)................. 17.438 5.000
FISCAL YEAR 2000
First Fiscal Quarter (10/1/99 to 12/31/99)................ $12.000 $10.875
Second Fiscal Quarter (1/1/00 to 3/31/00)................. 25.500 12.250
Third Fiscal Quarter (4/1/00 to 6/30/00).................. 28.125 20.250
Fourth Fiscal Quarter (7/1/00 to 9/30/00)................. 23.938 11.625
As of December 15, 2001, the Company had 12,816,569 shares of Common Stock
outstanding and approximately 1,500 holders of record of such stock, and no
shares of preferred stock were outstanding as of that date.
Dividends
The Company has never paid any dividends on its Common Stock. The Company
does not anticipate paying cash dividends on Common Stock in the foreseeable
future based on its expected operating cash flow requirements (see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources"). The Nevada General Corporation
Law prohibits the Company from paying dividends or otherwise distributing
funds to its stockholders, except out of legally available funds. The
declaration and payment of dividends on the Company's Common Stock and the
amount thereof will be dependent upon the Company's results of operations,
financial condition, cash requirements, future prospects and other factors
deemed relevant by the Board of Directors. No assurance can be given that the
Company will pay any dividends on Common Stock in the future.
During fiscal year 2001, the subsidiaries of the Company did not declare any
dividends to its common stockholders.
On December 23, 1999, the Board of Directors of Pipasa declared a dividend
of 637,000 series "TCA" shares of preferred stock of Pipasa, valued at
$2,143,626, to common stockholders of record as of September 30, 1999. Pipasa
distributed 379,398 shares to the Company and 257,602 to Inversiones La
Ribera, S.A. in accordance with the ownership of Pipasa's common stock as of
September 30, 1999. The dividends distributed corresponded to earnings
pertaining to the year ended September 30, 1999.
Immediately after the issuance of the 637,000 shares of preferred stock,
Pipasa repurchased such stock for an amount equal to the value of such
repurchased stock, or $2,143,626, from the stockholders. The stockholders then
used the proceeds of the repurchase to pay off certain outstanding debts with
Pipasa. Accordingly, outstanding debts from Inversiones La Ribera, S.A. and
the Company amounting to $1,276,743 and $866,882, respectively, were paid off.
On December 23, 1999, the Board of Directors of As de Oros declared a
dividend of 590,000 series "TCA" shares of preferred stock of As de Oros,
valued at $1,983,327 to common stockholders of record as of September 30,
1999. As de Oros distributed 332,642 shares to the Company and 257,358 shares
to Comercial Angui, S.A. in accordance with As de Oros' ownership of common
stock as of September 30, 1999. The dividends distributed corresponded to
earnings pertaining to the year ended September 30, 1999.
Immediately after the issuance of such preferred stock, As de Oros
repurchased a portion of the preferred stock issuance for an amount equal to
the value of such repurchased stock, or $881,273, from the stockholders.
14
The stockholders used the proceeds of the purchase to pay off outstanding
debts with As de Oros. As de Oros paid off outstanding debts from Inversiones
La Ribera, S.A. and the Company, amounting to $537,896 and $343,377,
respectively.
During the year ended September 30, 1999, Pipasa distributed 510,565 series
"TCA" of preferred stock as dividends to its common stockholders, in the
amount of $1,929,766. During the year ended September 30, 1998, Pipasa
distributed 282,958 series "TCA" shares of preferred stock as dividends to its
common stockholders, in the amount of $1,103,666.
ITEM 6. SELECTED FINANCIAL DATA
The selected financial data presented below should be read in conjunction
with the consolidated financial statements and related notes, "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the other financial information included elsewhere in this Form 10-K. The data
as of September 30, 2001 and 2000 and for the fiscal years ended September 30,
2001, 2000 and 1999, are derived from the Company's audited consolidated
financial statements included elsewhere in this Form 10-K. The balance sheet
data as of September 30, 1998 is derived from the Company's audited financial
statements not included in this Form 10-K.
2001 2000 1999 1998 1997
---------- ---------- --------- --------- ---------
(In thousands, except share and per share data)
Sales..................... 127,336 123,628 118,550 98,794 64,658
Cost of sales............. 86,841 83,757 77,275 71,464 47,847
Income from operations.... 5,694 6,506 12,427 6,155 3,962
Income before income taxes
and minority interest.... 1,188 3,725 8,174 3,641 2,382
Net income applicable to
stockholders............. 1,348,784 2,889 3,041 1,130 754
Diluted earnings per
common share............. 0.11 0.24 0.42 0.16 0.11
Total assets.............. 91,099 88,182 70,323 63,005 36,554
Long-term debt, net of
current portion.......... 21,054 21,821 21,444 22,559 5,252
Diluted weighted average
number of common shares
outstanding.............. 12,810,021 11,878,353 7,269,769 7,113,265 6,639,075
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
General
Management is responsible for preparing the Company's consolidated financial
statements and related information that appears in this Form 10-K. Management
believes that the consolidated financial statements fairly reflect the form
and substance of transactions and reasonably present the Company's
consolidated financial condition and results of operations in conformity with
generally accepted accounting principles in the United States ("GAAP").
Management has included in the Company's consolidated financial statements
amounts that are based on estimates and judgments, which it believes are
reasonable under the circumstances. The Company maintains a system of internal
accounting policies, procedures and controls intended to provide reasonable
assurance, at the appropriate cost, that transactions are executed in
accordance with the Company's authorization and are properly recorded and
reported in the consolidated financial statements, and that assets are
adequately safeguarded.
The Company's operations are primarily conducted through its 100% owned
subsidiaries: Corporacion Pipasa, S.A. and subsidiaries ("Pipasa") and
Corporacion As de Oros, S.A. and subsidiaries ("As de Oros"). The Company,
through its subsidiaries, is the largest poultry company in Costa Rica. As de
Oros also owns and operates a chain of quick service restaurants in Costa Rica
operated under the name "Restaurantes As de Oros."
15
Seasonality
The Company's subsidiaries have historically experienced and have come to
expect seasonal fluctuations in net sales and results of operations. The
Company's subsidiaries have generally experienced higher sales and operating
results in the first and second quarters of each fiscal year. This variation
is primarily due to holiday celebrations that occur during these periods in
which Costa Ricans prepare traditional meals that include dishes with chicken
as the main ingredient. The Company expects this seasonal trend to continue
for the foreseeable future.
Environmental compliance
The Company has been and is practicing appropriate environmental policies
such as reforesting, processing and recycling of its waste, producing organic
fertilizer, and building oxidation lagoons and sewage treatment plants. The
Company's compliance with environmental laws and regulations relating to the
discharge of material into the environment or otherwise relating to the
protection of the environment has not had a material effect on the Company's
financial position and results of operations. For fiscal year ended September
30, 2001, the Company invested approximately $660,000 in environmental
projects, such as waste treatment facilities and sewage processing. The
Company intends to invest approximately $150,000 to improve its sewage
treatment in the further processing plant in fiscal year 2002.
At the present time, the Company is not subject to any material costs for
compliance with any environmental laws in any jurisdiction in which it
operates. However, in the future, the Company could become subject to material
costs to comply with new environmental laws or environmental regulations in
jurisdictions in which it might conduct business. At the present time, the
Company cannot assess the potential impact of any such potential environmental
regulations.
Fiscal Year 2001 Compared to Fiscal Year 2000
The Company's operations resulted in a $0.11 diluted earnings per share for
the fiscal year ended September 30, 2001, as compared to a $0.24 diluted
earnings per share during the fiscal year ended September 30, 2000. Results of
operations for fiscal year 2001, when compared to fiscal year 2000, were
negatively impacted by adverse economic factors that have affected Costa Rica,
as well as North and Central America. According to information issued by the
Central Bank of Costa Rica ("BCCR"), commodity exports for Costa Rica for the
year ended September 30, 2001 decreased by 18.97% when compared to the year
ended September 30, 2000. This decrease was mainly due to the economic slow-
down in the United States, which according to information issued by the BCCR,
purchased 52.5% of total exported commodities during fiscal year 2000. Other
external factors that have negatively impacted the Costa Rican economy include
increases in the international price of oil, decrease in international prices
of coffee and banana and investments from external sources during fiscal year
2000, which has continued through fiscal year 2001 according to information
issued by the Ministry of Foreign Commerce of Costa Rica. However, the Costa
Rican economy has recently experienced positive factors such as a devaluation
rate of only 6.77% for the year ended September 30, 2001, which has been the
lowest since March 1994, according to information issued by the BCCR, while
variations in the inflation rate during the same period have been below the
average for the same period.
In response to the adverse economic outlook, the Costa Rican government has
lowered interest rates beginning in 2001 in an effort to increase consumption,
investment and employment rates, and has implemented a plan to promote the
development of small and medium sized companies in Costa Rica. Additionally,
the current government plans to continue to keep increases in devaluation
rates within normal parameters.
The decrease in the Costa Rican consumer's purchasing power affects the
overall demand for goods and services in Costa Rica, including the demand for
the Company's products. As a result, sales for some segments of the Company,
mainly the broiler and by-products segments, fell short of expectations. In
response, the Company has temporarily lowered the sales of certain products,
mainly in the broiler and by-products segments,
16
and shifted its product mix to include lower priced products which, in the
aggregate, have contributed to lower sales for fiscal year 2001, than those
that were budgeted for the Company. During the quarter ended September 30,
2001, the Company increased sales prices of those products directed towards
customers with higher purchasing power, which resulted in an increase in sales
and profit ratios. The Company plans to increase its sales prices periodically
during the next fiscal year, depending on the economic outlook of the Company.
The Company uses segment profit margin information to analyze segment
performance, which is defined as gross profit less selling expenses as a
percentage of sales.
Broiler sales decreased by 4.5% for fiscal year 2001 when compared to fiscal
year 2000. The decrease is attributable to a reduction in sales volume of
3.5%, in addition to temporary decreases of sales prices of certain products
offered by the Company during this period. The decrease in profit margin due
to discounts was offset by operating efficiencies in the production process.
Segment profit margin did not vary significantly, increasing from 20.5% to
21.0%.
Animal feed sales increased by 9.8% for fiscal year 2001 when compared to
fiscal year 2000. The increase is attributable to an increase in sales volume
of 6.5%, primarily in the pet food and pellet line of products, resulting from
an increase in market share and increase in sales of higher profit products.
Segment profit increased from 10.9% for fiscal year 2000 to 11.4% for fiscal
year 2001, mainly due to operating efficiencies as a result of capital
investments and a shift in the product mix to higher profit products.
Sales of by-products increased by 17.6% for fiscal year 2001 when compared
to fiscal year 2000. This increase was primarily due to a sales volume
increase of 29.9%, offset by temporary decreases of sales prices for some
products offered by the Company. Sales for fiscal 2001 include sales of the
new Zaragoza brand name. The temporary decrease in sales prices offered,
variations in the sales mix to include more lower profit products and an
increase in the cost of raw materials contributed to a decrease in the segment
profit margin from 23.1% for fiscal 2000 year to 14.7% for fiscal year 2001.
Export sales increased by 35.5% for fiscal year 2001 when compared to fiscal
year 2000, mainly due to increased sales of broilers to Honduras, fertile
eggs, pet food products and live chicks. Segment profit margin increased from
0.5% to 7.3% due to lower operating expenses and variations in the sales mix
to more profitable products and increases in the sales volume.
Sales for the quick service segment continue to be negatively affected by
greater competition and market saturation. Sales for fiscal year 2001
decreased by 19.4% when compared to fiscal year 2000. Segment profit margin
increased from 4.1% for fiscal year 2000 to 5.6% for fiscal year 2001, mainly
due to an increase in operating efficiencies and lower production costs.
Sales for the other segments increased by 77.6% for fiscal year 2001 when
compared to fiscal year 2000. This increase is attributable to the increase in
the sale of commercial eggs. Segment profit margin decreased slightly from
11.0% for fiscal year 2000 to 10.6% for fiscal year 2001, primarily due to
variations in the sales mix. Sales of other products represented 4.8% and 2.8%
of total net sales for the years ended September 30, 2001 and 2000,
respectively.
Operating expenses increased by 3.98% for fiscal year 2001 when compared to
fiscal year 2000. Operating expenses represent 27.3% and 27.1% of net sales
for the years ended September 30, 2001 and 2000, respectively. The increase is
primarily due to general increases in professional services, advertising,
employee payroll in accordance with the Company's policies, increase in
vehicle leasing as a result of new distribution routes and the substitution of
old vehicles, offset by lower operating expenses from the quick service and
export segments.
Other expenses increased by 69.4% for fiscal year 2001 when compared to
fiscal year 2000. The increase is primarily due to an increase in interest
expense and foreign exchange losses resulting from an overall increase in
debt.
17
The Company's income tax resulted in a benefit of ($390,833) for fiscal year
2001, compared to $80,223 for fiscal year 2000. The tax benefit for fiscal
year 2001 is the result of deferred income taxes. Recent changes in the tax
law in Costa Rica, which changes are proposed to go into effect next year,
will eliminate significant tax benefits for the Company (See note 14 of the
Company's Fiscal 2001 Audited Report). The Company has not quantified the
impact of this new tax law on its results of operations or financial position.
Fiscal Year 2000 Compared to Fiscal Year 1999
The Company's diluted earnings per share were $0.24 for fiscal year 2000,
compared to $0.42 during fiscal year 1999. The decrease in the diluted
earnings per share is mainly due to the November and December 1999 acquisition
of the remaining minority interests of Pipasa and As de Oros through an
issuance of an aggregate of 5,354,516 shares of the Company's Common Stock and
a decrease in the Company's income for fiscal year 2000.
Sales of broiler chicken increased by 1.9% for the fiscal year 2000 compared
to fiscal year 1999. This increase is primarily due to a 1.2% increase in
tonnage and an increase in average sales prices offset by stronger market
competition in this segment and a decrease in the consumption of chicken by
the general consumer whose income has been affected by adverse economic
factors in Costa Rica. In addition, during fiscal year 2000, the Company
temporarily reduced sales prices for some brands in order to increase sales.
Segment profit margin decreased by 3.4% mainly due to increases in the cost of
raw material, broad fluctuations in the sales mix of less profitable products
and increases in plant maintenance costs.
Sales for commercial animal feed for fiscal year 2000 increased by 8.8% when
compared to fiscal year 1999. This increase is due to a 23.0% increase in
tonnage as a result of new distribution outlets, new clients and increased
sales of pet food products, offset by the Company's policy not to increase
sales prices for some products in this segment, due to strong market
competition. Segment profit margin decreased by 3.7% mainly due to these
factors and to increases in the cost of raw materials.
Total sales for the by-product segment for fiscal year 2000 increased by
21.1% when compared to fiscal year 1999, mainly due to an 18.4% increase in
tonnage resulting from an increase in average sales prices and increased sales
due to the introduction of new distribution routes. Segment profit margin did
not vary significantly.
Sales for the quick service segment decreased by 14.5% for fiscal year 2000
when compared to fiscal year 1999. The decrease in sales is the result of
strong market competition in this segment together with the temporary closing
of some restaurants due to remodeling. Segment profit margin did not vary
significantly.
The Company's sales for the export segment for fiscal year 2000 increased by
35.0% when compared to fiscal year 1999. The increase is primarily due to an
increase in sales by Pipasa's subsidiary in Honduras and an overall increase
in the sales of pet food products, broiler chicken and recycling material.
Segment profit margin decreased by 13%, mainly due to variations in the sales
mix to less profitable products.
Sales for the other segment for fiscal year 2000 increased by 2.1% compared
to fiscal year 1999. This increase is mainly due to the sale of recyclable
material, which the Company began to market during this fiscal year. The low
profitability of the recyclable material resulted in a decrease in this
segment's profit margin of 13.6%. Sales of other products represented 2.8% and
2.9% of total sales for fiscal years 2000 and 1999, respectively.
Operating expenses for fiscal year 2000 increased by 16.1% when compared to
fiscal year 1999. The increase is primarily attributable to payroll expenses
to prepare the executive organizational structure of the Company for further
international expansion, in addition to a general increase in employee payroll
in accordance with the Company's policy to make two annual salary increases.
There were also increases in vehicle fleet leasing costs, as a result of
leasing of new vehicles, and in the amortization of cost in excess of net
assets acquired
18
(goodwill) and excess of fair value over book value of assets of acquired
businesses allocated to property, plant and equipment, as a result of the
purchase of the remaining minority interest of As de Oros. Also, the Company
has incurred additional expenses related to research in other international
markets aimed at future growth of the Company's operations in other countries.
As a percentage of sales, operating expenses represented 27.1% and 24.3% for
fiscal years 2000 and 1999, respectively.
Other expenses (income) for fiscal year 2000 decreased by 38.9% when
compared to fiscal year 1999. The decrease is mainly due to an increase in
interest income resulting from increases in notes receivable, dividends
received from long term investments in stocks, and gains from sales of
vehicles, properties and other assets. As a percentage of sales, other
expenses represented 2.1% and 3.6% for fiscal years 2000 and 1999,
respectively.
Provision for income taxes for fiscal year 2000 decreased by 89.5%,
primarily due to a decrease in taxable income and an increase in amortization
of deferred income tax, resulting from the acquisition of the remaining
minority interest in As de Oros.
Financial condition
Operating activities. As of September 30, 2001, the Company had $4.9 million
in cash and cash equivalents. The working capital deficit was $10.3 million
and $8.2 million as of September 30, 2001 and 2000, respectively. The current
ratios were 0.77 and 0.79 as of September 30, 2001 and 2000, respectively.
Cash provided by operating activities amounted to $4.0 million and $9.8
million for fiscal years 2001 and 2000, respectively. The decrease is the
result of a decrease in net income, and a decrease in accounts payable related
to the acquisition of new equipment invested during the last fiscal year,
offset by a lower increase in inventory levels during the present fiscal
period.
Investment activities. Funds used for investing activities for fiscal 2001
totaled $8.7 million, compared to $17.4 million for fiscal year 2000. Cash
flows from investing activities reflect capital expenditures, which are
primarily related to the production area and have been primarily allocated to
the construction of the second phase of the extruded and rendering plant,
expansion of the slaughtering and further processing plants and increases in
the vehicle fleet. In addition, the Company acquired the Zaragoza brand name
and has acquired new vehicles through leasing agreements. Pursuant to such
lease agreements, the Company has agreed with the lessor to create a self-
insurance trust, which is included in the short and long-term investment
accounts. The Company anticipates that it will spend approximately $2.5
million for capital expenditures during fiscal year 2002 and expects to
finance such expenditures with internal cash flows and loans.
Financing activities. As of September 30, 2001, the Company arranged for
line of credit agreements with banks and raw material suppliers for a maximum
aggregate amount of $27.1 million, of which $23.5 million has been used.
Agreements may be renewed annually and bear interest at annual rates ranging
from 5.56% to 10.83%. The market value of property and other collateral
securing such agreements amounted to approximately $12.9 million. All other
agreements are unsecured.
During fiscal year 2001, net cash provided by financing activities was $3.3
million, compared to $7.1 million provided during fiscal year 2000. Financing
activities reflect the payment of the first $4 million annual amortization of
the private placement of debt with Pacific Life, which was financed by short
and long-term debt. Since the end of the last fiscal year, the Company has
been analyzing different alternatives to restructure its debt from short-term
to long-term. One of these alternatives was the possible issuance by As de
Oros of an aggregate of $20 million in Preferred Shares at a 9% rate. Such
issuance was authorized by the Superintendencia General de Valores (General
Superintendent of Securities) on November 29, 2000. However, due to a recent
Costa Rican government issuance of more than $250 million in bonds which
decreased the proposed liquidity in the Costa Rican securities market, the
Company cancelled the public offering of the Preferred Shares by As de Oros
during the last quarter of fiscal year 2001. As another alternative, during
the second quarter of fiscal year 2001, the Company signed an engagement
letter with the investment banking firm of Ladenburg Thalmann & Co. Inc. This
firm has been engaged to assist the Company in structuring its overall
corporate and expansion plans, including the possibility of issuing debt or
equity securities, debt restructuring and any project financing.
19
On January 14, 2002, Pacific Life, the Company and each of the Subsidiaries
entered into a waiver agreement (the "Waiver"), pursuant to which Pacific Life
waived certain events of default that may have occurred under the Amended and
Restated Note Purchase Agreement. As the Company disclosed in its Form 8-K
filed on December 28, 2001, which is hereby incorporated by reference, the
Company and the Subsidiaries believe that an event of default may have
occurred under (i) Section 10.1 of the Amended and Restated Note Purchase
Agreement as a result of the making of loans to certain individuals and/or
entities; (ii) Section 10.4(a)(iii) of the Amended and Restated Note Purchase
Agreement due to the Subsidiaries' failure to comply with a requirement that
the ratio of Consolidated Total Debt to Consolidated EBITDA (each such term as
defined in the Amended and Restated Note Purchase Agreement) at no time exceed
a 3 to 1 ratio during certain fiscal years; and (iii) Section 10.6(j) of the
Amended and Restated Note Purchase Agreement which requires that the
Subsidiaries not incur additional liens, under certain circumstances, in
excess of .50 times Consolidated EBITDA for fiscal year 2001. These breaches
did not involve any payment violation and, in fact, the Company is current on
all payments due to be paid to Pacific Life, as well as all other payments
currently due to be paid to other third party creditors of the Company. In
addition, the Company expects to make the next timely required payment under
the Amended and Restated Note Purchase Agreement in the amount of
approximately $4.9 million during the first half of January 2002. This will
reduce the principal amount outstanding under the Amended and Restated Note
Purchase Agreement to $12.0 million, from the original amount borrowed of
$20.0 million.
Management expects to continue to finance operations and capital
expenditures through its normal operating activities and external sources.
Management also expects that there will be sufficient resources available to
meet the Company's short-term cash requirements.
CAUTIONARY STATEMENTS RELEVANT TO FORWARD-LOOKING INFORMATION FOR THE PURPOSE
OF SAFE HARBOR PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995.
The Company and its representatives may, from time to time, make written or
oral forward-looking statements with respect to their current views and
estimates of future economic circumstances, industry conditions, company
performance and financial results. These forward-looking statements are
subject to a number of factors and uncertainties which could cause the
Company's actual results and experiences to differ materially from the
anticipated results and expectations expressed in such forward-looking
statements. The Company cautions readers not to place undue reliance on any
forward-looking statements, which speak only as of the date made. Among the
factors that may affect the operating results of the Company are the
following: (i) fluctuations in the cost and availability of raw materials,
such as feed grain costs in relation to historical levels; (ii) market
conditions for finished products, including the supply and pricing of
alternative proteins which may impact the Company's pricing power; (iii) risks
associated with leverage, including cost increases attributable to rising
interest rates; (iv) changes in regulations and laws, including changes in
accounting standards, environmental laws, occupational and labor laws, health
and safety regulations, and currency fluctuations; and (v) the effect of, or
changes in, general economic conditions.
This management discussion and analysis of the financial condition and
results of operations of the Company may include certain forward-looking
statements, within the meaning of Section 27A of the Securities Act of 1933,
as amended, and Section 21E of the Securities Exchange Act of 1934, as
amended, including, without limitation, statements with respect to anticipated
future operations and financial performance, growth and acquisition
opportunity and other similar forecasts and statements of expectation. Words
such as expects, anticipates, intends, plans, believes, seeks, estimates,
should and variations of those words and similar expressions are intended to
identify these forward-looking statements. Forward-looking statements made by
the Company and its management are based on estimates, projections, beliefs
and assumptions of management at the time of such statements and are not
guarantees of future performance. The Company disclaims any obligations to
update or review any forward-looking statements based on the occurrence of
future events, the receipt of new information or otherwise.
Actual future performance outcomes and results may differ materially from
those expressed in forward-looking statements made by the Company and its
management as a result of a number of risks, uncertainties and assumptions.
Representative examples of these factors include, without limitation, general
industrial and economic conditions; cost of capital and capital requirements;
shifts in customer demands; changes in the continued availability of financial
amounts and the terms necessary to support the Company's future business.
20
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
General
Market risks relating to the Company's operations result primarily from
changes in currency exchange rates, interest rates, commodity prices and
foreign competition. The sections below describe the Company's exposure to
interest rates, foreign exchange rates and commodities prices. The sensitivity
analyses presented below are illustrative and should not be viewed as
predictive of future financial performance. Additionally, the Company cannot
assure that the Company's and/or its subsidiaries' actual results in any
particular year will not differ from the amounts indicated below.
Foreign Exchange Risk
The subsidiaries of the Company operate in Costa Rica and are exposed to
market risk from changes in U.S. currency exchange rates. Foreign exchange
risk derives from the fact that the Company makes its payments in dollars for
the majority of its imported raw materials and bank facilities, and its
revenues are mostly denominated in colones. The Company does not currently
maintain a trading portfolio and does not utilize derivative financial
instruments to manage its risks. To mitigate its exposure to variations in
devaluations, the Company systematically increases its annual sales prices by
a rate that is consistent with the colon devaluation against the U.S. dollar.
For the fiscal years ended September 30, 2001, 2000 and 1999, the colon
devaluation rates were 6.77%, 7.06% and 10.81%, respectively, and
correspondingly, the Company increased its sales prices 1.50%, 9.90% and
10.81%, respectively. Management believes that the Company's strong market
will allow for continued price increases without sacrificing long-term demand
and market share. For fiscal year 2001, due to the adverse economic climate,
the Company temporarily decided not to make any significant increases to its
sales prices as a marketing strategy in order to best maintain sales and
market share.
The exchange rate between the colon and the U.S. dollar is determined in a
free exchange market, supervised by the Banco Central de Costa Rica ("Banco
Central"). For the last 20 years, Banco Central has utilized the crawling peg
method whereby the colon is devalued daily on a systematic basis. The Company
believes that an additional 10% annual decline of the colon in the
colon/dollar exchange rate is reasonably possible over the next year.
As of September 30, 2001, the Company had outstanding indebtedness of
approximately $46.3 million denominated in U.S. dollars. The potential foreign
exchange loss resulting from a hypothetical 10% decline during the year in the
colon/dollar exchange rate would be approximately $290,000. This loss would be
reflected in the balance sheet as increases in the principal amount of its
dollar-denominated indebtedness and in the income statement as an increase in
foreign exchange losses, reflecting the increased cost of servicing dollar-
denominated indebtedness. This analysis does not take into account the
positive effect that the hypothetical decline would have on accounts
receivable and other assets denominated in U.S. dollars.
Interest Rate Risk
As of September 30, 2001, the Company had outstanding a total of
approximately $46.5 million in loans and other debt, of which $30.1 million
bore variable interest rates, based primarily on LIBOR or U.S. Prime Rate for
its colones and dollar-denominated indebtedness. A hypothetical, simultaneous
and unfavorable change of 10% in the Company's variable rate in effect as of
September 30, 2001 would result in a potential increase in interest expense of
$256,000. Accordingly, the sensitivity analysis model may overstate the impact
of the Company's interest rate risk, as uniform movements of all interest
rates applicable to its financial liabilities are unlikely to occur
simultaneously.
Commodity Risk
The Company imports all of its corn and soybean meal, the primary
ingredients in chicken feed, from the United States. Fluctuations in the price
of corn may significantly affect the Company's profit margin. For fiscal year
2001, the Company's average monthly purchases approximated $1.4 million and
$960,000, respectively. The price of corn and soybean meal, like most grain
commodities, is fairly volatile and requires constant and daily hedging in
order to minimize the effect of price increases on the Company's profit
margin.
21
The Company purchases its corn through the Chicago Board of Trade ("CBOT")
and has been actively hedging its exposure to corn price fluctuations since
1991. The Company's strategy is to hedge against price increases in corn and
soybean meal, and it is not involved in speculative trading. Contract terms
range from one month to six months. The Company buys directly from the spot
market if market conditions are favorable, but as a general rule, the Company
purchases most of its corn through contracts. The Company's hedging strategy
is set in its annual budget, which determines how much corn and soybean meal
the Company will need and the price the Company must pay in order to meet
budget forecasts. The Company uses an internal pricing model to prepare
sensitivity analyses. The Company bases its target prices on the worst case
price assumptions (i.e. high prices). The prices paid by the Company for corn
and soy bean meal were 1.18% and 6.58% above its budgeted prices,
respectively, for the year ended September 30, 2001. The Company purchases its
soybean meal through a company in Costa Rica, INOLASA, in which the Company
holds a 10% equity interest. In Costa Rica, there is an applicable 5% tax for
soybean meal imports, which is not levied if such imports are purchased
through INOLASA. If for any reason INOLASA cannot deliver the soybean meal to
the Company, the Company can buy its soybean meal directly from the CBOT. Thus
far, the Company has never had to purchase soybean meal directly from the
CBOT.
The Company has a $500,000 credit line with Futures U.S.A., Inc. ("FIMAT")
and draws upon this credit line to cover its initial margin deposit. The
interest rate paid on this line of credit averages an annual rate of less than
10% on drawn amounts.
A hypothetical 6.40% and 6.32% increase in the monthly price of corn and
soybean meal based on fiscal year 2001, respectively, would have resulted in
an increase in cost of sales of approximately $1.4 million.
Foreign Competition
The Company believes that the likelihood of a threat by foreign competitors
is low based on the preference of the Costa Rican consumer for fresh, high
quality chicken produced by the Company, as opposed to frozen imported
chicken, and quotas established by the Costa Rican government.
The Agriculture Ministry in Costa Rica monitors all chicken entering the
country to prevent the spread of Newcastle Disease in Costa Rica. The market
in Costa Rica is also assisted by existing tariff agreements. Chicken
importers must pay duties as dictated by the General Agreement on Trade and
Tariffs (GATT). These agreements were reached at the Uruguay Round of the GATT
negotiations, which are scheduled to end in 2004, after which it is probable
that similar negotiations will continue. The agreements and current
negotiations that are being carried out with the present Costa Rican
government provide quotas and scaled tariffs, and permit only certain cuts to
enter the Costa Rican market.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Information required by this item is incorporated by reference to the
Independent Auditor's Report included on page F-2 and from the consolidated
financial statements and supplementary data on pages F-3 through F-33 on this
Form 10-K.
ITEM 9. CHANGES IN OR DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES.
Not applicable.
22
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS.
The directors and executive officers of the Company, their ages and present
positions held in the Company, as of the date hereof, are as follows:
Name Age Position Held
---- --- ----------------------------
Calixto Chaves.............................. 55 Chairman, Chief Executive
Officer, President and
Director
Jose Pablo Chaves........................... 29 Chief Operating Officer
(until July 29, 2001)
Federico Vargas............................. 68 Director, Chairman of the
Audit Committee since 1999
Jorge M. Quesada............................ 52 Treasurer and Director;
Member, Audit Committee
Luis J. Lauredo............................. 52 Director since August 5,
1996 until July 7, 2000 and
from August 30, 2001 to
date. Chairman of the Audit
Committee (until July 7,
2000)
Alfred E. Smith, IV......................... 50 Director
Monica Chaves............................... 30 Secretary, Head of Investor
Relations and Director
The Honorable Ambassador Luis Guinot, Jr. .. 66 Director and Chairman of the
Compensation Committee
(until December 10, 2001)
Randall Piedra.............................. 35 Chief Financial Officer
(until January 14, 2002)
Mauricio Marenco............................ 37 General Counsel and
Assistant Secretary
Pedro De Mattheu............................ 61 Director since August 30,
2001
Jack Peeples................................ 71 Director
Carlos Zamora............................... 40 Chief Operating Officer
since July 29, 2001
The Company's directors will serve in such capacity until the next annual
meeting of stockholders of the Company and until their successors have been
elected and qualified. The officers serve at the discretion of the Company's
directors. Calixto Chaves and Monica Chaves are father and daughter. Calixto
Chaves and Jose Pablo Chaves are father and son. Jorge M. Quesada is the
brother-in-law of Calixto Chaves. Mr. Mauricio Marenco, General Counsel and
Assistant Secretary, is married to one of Mr. Calixto Chaves' nieces.
Otherwise, there are no family relationships among the Company's officers and
directors, nor are there any arrangements or understandings between any of the
directors or officers of the Company or any other person pursuant to which any
officer or director was or is to be selected as an officer or director.
Calixto Chaves. Mr. Chaves is the founder and President of Corporacion
Pipasa, S.A. from its inception in 1969 to the present. He is currently on the
Board of Directors of Central American Oils and Derivatives, S.A., and
American Oleaginous Industry. From 1994 to 1996, he was a Board member of
Cerveceria Americana, a private brewery. In 1994, he served as an advisor to
the President of Costa Rica and the Ministry of Economic Business Affairs.
From 1983 to 1985, he was a member of the Board of Directors of the Sugar Cane
Agricultural League. From 1982 to 1986, he served as Minister of the Costa
Rican Ministry of Industry, Energy and Mines and became Minister of Natural
Resources in 1986. From 1982 to 1986, he was a member of the Board of
Directors of MINASA, a Costa Rican mining company. Mr. Chaves was the founder
of the Chamber of Industries in the Costa Rican province of Heredia. From 1973
to 1974, he was President of the Board of Directors of Banco Nacional de
Belen.
23
Dr. Federico Vargas. Dr. Vargas is a Board member of Corporacion Pipasa,
S.A., one of the Registrant's subsidiaries. He has served as a Professor of
Economics and Social Sciences at the University of Costa Rica from 1963 to the
present. Dr. Vargas has been involved extensively in political activities
since 1974. From 1990 to 1994, he served as a Deputy in the Costa Rican
Assembly. From 1993 to 1994, he was Chairman of the Legislative Section of the
Partido Liberacion Nacional of Costa Rica. Prior to 1990, Dr. Vargas held a
number of political offices, including Minister of Finance on two occasions,
Ambassador of Costa Rica to the United States, Ambassador of Costa Rica to the
Organization of American States, Counselor to the President of Costa Rica in
Finance and External Debt, with the rank of Minister of Economics, and Advisor
to the President of Costa Rica. His teaching activities included serving as
the Chairman of the "Instituto de Investigaciones Economicas," University of
Costa Rica and Director of the School of Economics and Social Sciences of the
University of Costa Rica. Dr. Vargas serves on the Board and advisory bodies
of numerous charitable and educational organizations and is the author of a
number of publications on economic and educational matters. He obtained his
Bachelor's Degree in Business Administration from Nichols College in
Massachusetts in 1954 and his Ph.D. from the University of Colorado in 1967.
He has also attended the Wharton School of Finance and Commerce at the
University of Pennsylvania. Mr. Vargas graduated from the University of Costa
Rica with a degree in Business Administration.
Jorge M. Quesada. Mr. Quesada has held numerous positions with Corporacion
Pipasa, S.A. since 1985, and was its Executive Vice President from 1990 to
1999. Mr. Quesada was appointed President of Pipasa and As de Oros on March 1,
1999. He was a member of the Board of Directors of Banco Fomento Agricola from
1991 to 1996. From 1987 to 1991, he was on the Board of Directors of
Financiera Belen, S.A. Mr. Quesada has conducted numerous seminars regarding
marketing topics. He obtained his Degree in Business Administration, with
emphasis on Public Accounting, from the University of Costa Rica in 1984.
Pedro J. De Matteu. Mr. De Matteu was born in Santa Ana, El Salvador. He
attended college at the University of Arizona where he obtained his Bachelor's
Degree in Agriculture Science in 1964, and his Master's Degree in Science,
focused on Animal Nutrition, in 1966. After completing his studies at the
University of Arizona, Mr. De Matteu became Hoffman Taff Western's (of
Ontorio, California) Technical Service Representative. He also served as a
Technical Director and Assistant to the President, as well as Consultant of
the biggest feed mill in California and Arizona. He introduced the Feed
Formulation Least Cost Linear Programming method, and developed antibiotic,
vitamin and mineral pre-mix formulas. He also coordinated the technical staff
activities such as sales and feed mill. Mr. De Matteu was also Manager of the
Animal Health Division, at Pfizer, S.A. for Central America and Panama, where
he developed, among other activities: a small business in Central America
which rose quickly to become number one in the field; established a Marketing
and Sales Department; coordinated the development and implementation of
marketing plans, including launching of new products that are still leaders in
the field; worked as a poultry advisor for Central American poultry
integrations; created animal health symposiums for the Central American and
the Caribbean area, and participated as orator in National and International
Congresses about Animal Health and Agriculture. In 1999, Mr. De Matteu became
Director of the Animal Health Group in NOLA (Mexico, Central America and
Venezuela), where he established the basis for a new stage of Animal Health
Group. Currently he manages a family business in El Salvador.
Honorable Ambassador Luis Lauredo. On January 7, 2000, Mr. Lauredo was
appointed United States Ambassador to the Organization of American States (the
"OAS"), and resigned from the Board of Directors of the Company. Mr. Lauredo
served as Ambassador to the OAS until June 2001. Mr. Lauredo has recently
joined the law firm of Hunton & Williams and will be working out of its Miami
and Washington, D.C. offices, focusing on international trade and governmental
affairs. From 1995 to 1999, Mr. Lauredo was President of Greenberg Traurig
Consulting, Inc., an affiliate of the international law firm, Greenberg
Traurig, P.A. From 1994 to 1995, he was Executive Director of the Summit of
the Americas. From 1992 to 1994, he was a Commissioner on the Florida Public
Service Commission, as well as Chairman of the International Relations
Committee of the National Association of Regulatory Utility Commissioners.
Throughout his career, Mr. Lauredo has held a number of positions in the
banking industry, including Senior Vice President of the Export-Import Bank of
the
24
United States. He has represented the President of the United States as
special U.S. Ambassador to the inaugurations of the Presidents of Colombia,
Venezuela, Brazil, and Costa Rica. He also served as a founding Director of
the Hispanic Council on Foreign Affairs (Washington, D.C.). Mr. Lauredo
received his B.A. from Columbia University in New York City and has attended
the University of Madrid in Spain and Georgetown University Law Center in
Washington, D.C.
Alfred E. Smith, IV. Mr. Smith has been a director of the Company since June
1, 1994. Mr. Smith has been the Managing Director of the Wall Street firm of
Hunter Specialists, LLC, New York, since January 1997. From 1979 to 1996, he
was with CMJ Partners, a New York Stock Exchange member firm. Mr. Smith is the
Chairman of the Government Relations Committee of the New York Stock Exchange,
Director and Secretary of the Alfred Emanuel Smith Memorial Foundation, where
he also is the Dinner Chairman; Chairman of the Cardinal's Committee for the
Laity-Wall Street Division since 1985; Founder and Chairman of Hackers for
Hope since 1989; Director of the Center for Hope since 1989; a Director at the
Catholic Youth Organization until 1997; member of the President's Council,
Memorial Sloan Kettering Hospital since 1986; and a member of the New York
City Advisory Board of the Enterprise Foundation. Mr. Smith has also been a
member of the Board of Trustees of St. Vincent's Hospital and Medical Center
since 1986 and the Cavalry Hospital since 1998, and was a member of the Board
of Trustees of Iona Prep School, Saint Agnes Hospital, and Our Lady of Mercy
Medical Center. Mr. Smith is a member of the Association of the Sovereign
Military Order of Malta. He has received numerous awards for his charitable
humanitarian work, including "Wall Street 50" Honoree Humanitarian Award,
Terence Cardinal Cooke Center in 1999; Man of the Year Award at Iona Prep in
1986, Club of Champions Gold Medal Award of the Catholic Youth Organization,
Ellis Island Medal of Honor, the National Brotherhood Award of the National
Conference of Christians and Jews, the Graymoor Community Service Award by the
Franciscan Friars of the Atonement, the American Cancer Society's Gold Sword
of Hope Award, and the Terence Cardinal Cooke Humanitarian Award by Our Lady
of Mercy Medical Center. Mr. Smith was educated at Villanova University.
Monica Chaves. Ms. Chaves is Secretary and Head of Investor Relations of the
Company, and a member of the Board of Directors of Rica Foods, Inc. Ms. Chaves
is also a member of the Board of Directors of Corporacion Pipasa. Ms. Chaves
joined Corporacion Pipasa as assistant manager in the Company's Finance
Division in 1991, where she was in charge of Pipasa's Special Investment
Department. In 1996, when the Company went public, Ms. Chaves assumed
oversight responsibility of the Company's Investor Relations Department. Ms.
Chaves was appointed the Vice President of Administration of Pipasa and As de
Oros on March 1, 1999. Ms. Chaves received a bachelor's degree in Business
Administration from Saint Michaels College, Vermont.
Honorable Ambassador Luis Guinot, Jr. Ambassador Luis Guinot, Jr. attended
college in the United States, and graduated from the Catholic University of
America School of Law in Washington, D.C. After completing his undergraduate
studies at New York University, he was commissioned an Ensign in the U.S. Navy
where he served in several billets--both shore and afloat, including a tour of
duty as gunnery officer of the destroyer USS Gearing (DD710) and Senior Shore
Patrol Officer of the U.S. Sixth Fleet based in Naples, Italy. After
completion of his military obligation, Mr. Guinot entered the private practice
of law in Washington, D.C. Mr. Guinot has served as United States Ambassador
to the Republic of Costa Rica, as the Assistant General Counsel of the United
States Department of Agriculture and as Administrator of the Office of the
Commonwealth of Puerto Rico in Washington, D.C. Additionally, Mr. Guinot has
also appeared as speaker and lecturer on United States-Latin American Trade,
NAFTA, and GATT related matters, and he is the author of several newspaper
articles on the same subject. Mr. Guinot is a member of the Commonwealth of
Virginia and the District of Columbia Bar Associations and has been admitted
to practice before the bars of the U.S. Supreme Court, the 1st and the 11th
Circuit Court of Appeals, the Bars of the Southern District of New York, and
the Southern District of Florida, Eastern Districts of Virginia, and the Court
of Military Appeals. Mr. Guinot is also a fellow of the American Bar
Foundation, served in the U.S. Presidential Commission on Civil Disorders
(Kerner Commission) and former member of the Board of Directors of the Legal
Services Corporation. Mr. Guinot was awarded the Grand Order of Juan Mora
(Silver Plaque) by the Government of Costa Rica. He has been a featured
speaker on conferences on the general subject of hemispheric free trade and
served as legal advisor to U.S. corporations doing business in Latin America
as well as legal advisor to ministries of Central and South American
Countries.
25
In addition to serving as a member of the Board of Directors of the Company,
Mr. Guinot was recently appointed to serve on the Board of Directors of Tampa
Energy Co. (TECO) of Tampa, Florida. Mr. Guinot resigned as a director of the
Company on December 10, 2001.
Jack Peeples. Mr. Peeples served in the Korean War as an Airborne Infantry
Officer and Rifle Company Commander. He was awarded a Combat Infantryman
Badge, a Bronze Star for Valor and a Purple Heart. Mr. Peeples graduated from
the University of Florida College of Law in 1957 and joined the law firm of
former Governor Leroy Collins in Tallahassee, Florida. Mr. Peeples was
appointed as Legislative Counsel to Governor Collins in 1958 and was appointed
to the Governor's Cabinet as State Beverage Director in 1959. Mr. Peeples
returned to the private practice of law in 1961, specializing in legislative
and administrative practice in Tallahassee, Florida. He was a founding partner
of Peeples, Earl & Blank in 1970, specializing in environmental law. Mr.
Peeples retired from Peeples, Earl & Blank in 1994 and joined White & Case as
of Counsel. Mr. Peeples served as Campaign Chairman and Chairman of the
Transition Team for Governor Lawton Chiles and Legislative and Senior Counsel
to the Governor. He has also served as Vice-Chairman of the Governor's
Commission on Governance, Vice-Chairman of Governor's Commission on the
Homeless, Chairman of Florida Aviation Commission, and Co-Chairman of the
Miami-Dade County Homeless Trust. Mr. Peeples is a Board Member of the Florida
Independent College Fund, Member of the Board of Oversight of the University
of Florida Medical School, and representative of the Governor and Cabinet on
the Downtown Development Authority for Tallahassee, Florida. He has also
served as General Counsel and member of the Board of Directors of Deltona
Corporation, a NYSE company, and he is a member of the Board of Directors and
Chairman of the Audit Committee of United Petroleum Group, a Hunt family
company, and as Senior Counsel and member of the Board of Directors of Senior
Networks, Inc.
Dr. Carlos Zamora. Dr. Carlos Zamora is the Live Production vice president
and was appointed Chief Operating Officer on July 29, 2001. Dr. Zamora is
responsible for overseeing and managing the Live Production at Corporacion
Pipasa. Between 1997 and 1998 Dr. Zamora led the merger integration of Pipasa
and As de Oros, serving as general vice president. Dr. Zamora obtained his DVM
degree (Doctor in Veterinary Medicine) from the Universidad Nacional of Costa
Rica in 1985, and since then has been involved with the Company's Integrated
Poultry Production Systems.
Compliance with Section 16(a) of the Securities Exchange Act of 1934
Section 16(a) of the Securities Exchange Act of 1934 (the "34 Act") requires
the Company's officers and directors and persons owning more than ten percent
of the Company's common stock to file initial reports of ownership and changes
in ownership with the Securities and Exchange Commission ("SEC").
Additionally, Item 405 of Regulation S-K under the 34 Act requires the Company
to identify in its Form 10-K and Proxy Statement those individuals for whom
one of the above referenced reports was not filed on a timely basis during the
most recent fiscal year or prior fiscal years. Given these requirements, the
Company reports that to the best of its knowledge all of the Company's
officers or directors and all persons owning more than ten percent of its
shares have filed the subject reports on a timely basis during the past fiscal
year.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth the summary compensation for the most highly
compensated officers for the last three fiscal years:
Salary Other
Name and Main Position Years Compensation(1) Compensation(2)
- ---------------------- ----- --------------- ---------------
Calixto Chaves--Chief
Executive Officer...... 2001 $145,233 $7,179
Calixto Chaves--Chief
Executive Officer...... 2000 $136,764 $5,633
Calixto Chaves--Chief
Executive Officer...... 1999 $128,262 $1,953
- --------
(1) All salary compensation was paid in Costa Rican colones. For the purposes
of this presentation, all compensation has been converted to U.S. dollars
at the then current exchange rate for Costa Rican colones.
(2) Represents Director's fees payable for action as a Director of Pipasa.
26
Compensation Committee Interlocks and Insider Participation
The Company has a Compensation Committee consisting of Luis Lauredo and
Pedro de Mattheu. This Committee makes the determinations for stock issuance
pursuant to the Company's compensation plans. The Company has no retirement,
pension or profit sharing plans covering its officers and directors, but does
contemplate implementation of such a plan in the future through Pipasa and As
de Oros. The Company's subsidiaries, Pipasa and As de Oros, have implemented
such a plan for all of its employees, management and officers.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of the latest practicable date, December
15, 2001, the number of shares of Common Stock of the Company which were owned
beneficially by (i) each person who is known by the Company to own
beneficially more than 5% of its Common Stock, (ii) each director and nominee
for director, (iii) certain executive officers of the Company.
Amount and Nature
Name and Address of of Beneficial Percentage of
Beneficial Owner(1) Ownership(2)(3) Shares Owned(2)
------------------- ----------------- ---------------
Calixto Chaves............................. 5,548,433(4) 44.44%
Comercial Angui, S.A. ..................... 2,297,130 19.46%
c/o Bufete Chaverri, Soto & Asociados
Barrio Escalante de Cine Magaly,
400 Metros Este
San Jose, Costa Rica
Jorge M. Quesada........................... 45,795(5) *
Monica Chaves.............................. 133,334(6) *
Luis Guinot, Jr............................ -- *
Luis J. Lauredo............................ -- *
Federico Vargas............................ -- *
Alfred E. Smith IV......................... 33,334 *
Jose Pablo Chaves.......................... 279,324(7) *
Jose A. Zamora............................. 47,295(8) *
Mauricio Marenco........................... 200 *
Randall Piedra............................. 200 *
- --------
* Indicates less than 1% of outstanding shares owned.
(1) Unless otherwise indicated, the address of each beneficial owner is Rica
Foods, Inc., 240 Crandon Boulevard, Suite 150, Key Biscayne, Florida
33159.
(2) A person is deemed to be the beneficial owner of securities that can be
acquired by such person within 60 days from the date hereof upon exercise
of options, warrants and convertible securities. Each beneficial owner's
percentage ownership is determined by assuming that options, warrants and
convertible securities that are held by such person (but not those held
by any other person) and that are exercisable within 60 days from the
date hereof have been exercised.
(3) Unless otherwise noted, the Company believes that all persons named in
the table have sole voting and investment power with respect to all
shares of Common Stock beneficially owned by them.
(4) Includes 861,315 shares of Common Stock owned of record by Atisbos de
Belen, S.A., a Costa Rican corporation wholly-owned by Mr. Chaves and his
wife, 704,857 shares of Common Stock owned of record by Inversiones
Leytor, S.A., a Costa Rican company wholly-owned by Mr. Chaves, and
298,667 shares of Common Stock owned of record by OCC, S.A., a Costa
Rican company wholly-owned by Mr. Chaves and his wife. Includes 3,683,595
shares of Common Stock acquired by Inversiones La Ribera S.A., a Costa
Rican corporation owned by Mr. Chaves and his wife. Does not include
133,334 shares and 279,324 shares owned by his adult daughter and adult
son respectively.
(5) Includes 45,795 shares owned by Jorque, S.A., a closely-held Costa Rican
company whose principal shareholders are the wife and sons of Mr. Jorge
Quesada.
27
(6) Owned of record by Moninternacional, S.A., a Costa Rican corporation
owned by Monica Chaves. Mr. Chaves disclaims any beneficial ownership of
these shares.
(7) Owned of record by Rtrosptva, S.A. a Costa Rican corporation wholly owned
by Jose Pablo Chaves. Mr. Chaves disclaims any beneficial ownership of
these shares.
(8) Owned of record by Inversiones Zamora y Aguilar S.A., a Costa Rican
corporation wholly owned by Jose A. Zamora and wife.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Balances and transactions with related parties consist of the following:
2001 2000
---------- ----------
Due from stockholders................................. $6,256,089 $4,900,499
Due from related parties.............................. 1,421,812 39,618
Due to stockholders (short-term)...................... 74,634 76,657
Due to stockholders (long-term)....................... 15,368 16,409
Balances due from stockholders for fiscal year 2001 and year 2000 originate
from loans, which bear interest at market rates which range from 10.5% to 12%
in U.S. dollars and 16% in colones, made primarily to the Company's Chief
Executive Officer, other stockholders and to Inversiones La Ribera, a company
100% owned by the Company's Chief Executive Officer. Interest income for
fiscal years ended September 30, 2001, 2000 and 1999 amounted to $550,739,
$405,040 and $87,535, respectively.
Current and long-term balances due to stockholders in 2001 and 2000
originate from notes payable to the Company's Chief Executive Officer and
other stockholders.
During fiscal years 2000 and 1999, the Board of Directors of Pipasa declared
a dividend to common stockholders of Pipasa for a total of 637,000 and 510,565
TCA preferred shares of Pipasa, valued at $2,143,626 and $1,929,766,
respectively. In accordance with Pipasa's ownership, Inversiones La Ribera,
S.A. received 257,602 shares during fiscal year 2000 and 206,472 shares during
fiscal year 1999, valued at $866,882 and $780,397, respectively. Immediately
after the issuance of such preferred stock, Inversiones La Ribera, S.A. used
the total proceeds of the dividends to pay off outstanding debts with Pipasa,
during each of fiscal years 2000 and 1999. The dividends distributed during
fiscal years 2000 and 1999 correspond to Pipasa's earnings pertaining to
fiscal years 1999 and 1998, respectively.
During fiscal year 2000, the Board of Directors of As de Oros declared a
dividend of 590,000 series TCA shares of preferred stock of As de Oros, valued
at $1,983,327 to common stockholders of record of As de Oros as of September
30, 1999. As de Oros distributed 332,642 shares to the Company and 257,358
shares to Comercial Angui, S.A. in accordance with As de Oros' common stock
ownership as of September 30, 1999. The dividends distributed correspond to As
de Oros' earnings pertaining to fiscal year 1999.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS SCHEDULES AND REPORTS ON FORMS 8-K
14 (a) Documents filed for this item are filed as a separate section
following the signature page. Reference is made to the Consolidated Financial
Statements beginning on page F-1.
(1) See Page No. F-1.
(2) Schedules, other than Page F-1, are omitted because of the absence of
conditions under which they are required or because the information
required is included in the consolidated financial statements and
notes thereto.
28
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
Rica Foods, Inc.
/s/ Calixto Chaves
Dated: January 15, 2002 By: _________________________________
Calixto Chaves
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Dated: January 15, 2002 /s/ Randall Piedra
By: _________________________________
Randall Piedra
Chief Financial Officer
Dated: January 15, 2002 /s/ Monica Chaves
By: _________________________________
Monica Chaves
Secretary
29
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
FORM 10K
----------------
EXHIBITS
TO
RICA FOODS, INC.
30
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
RICA FOODS, INC.,
We have audited the accompanying consolidated balance sheets of RICA FOODS,
INC. (a Nevada corporation) and subsidiaries as of September 30, 2001 and
2000, and the related consolidated statements of income, stockholders' equity,
and cash flows for each of the three years in the period ended September 30,
2001. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of RICA FOODS, INC. and
subsidiaries as of September 30, 2001 and 2000, and the results of their
operations and their cash flows for each of the three years in the period
ended September 30, 2001 in conformity with accounting principles generally
accepted in the United States.
Our audit was made for the purpose of forming an opinion on the basic
financial statements taken as a whole. Schedule II listed in Item 14 of Part
IV herein is presented for purposes of complying with the Securities and
Exchange Commission's rules and is not part of the basic financial statements.
This schedule has been subjected to the auditing procedures applied in the
audits of the basic financial statements and, in our opinion, fairly states in
all material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN
Mexico City, Mexico
December 7, 2001, (except with respect to the matter discussed in Note 8, as
to which the date is January 14, 2002).
31
RICA FOODS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30, 2001 and 2000